EcoTV Week – 06/08/2018 – Strong US data: too much of a good thing?

Recent US economic data point towards strong growth in the current quarter. The fundamentals underpinning demand in conjunction with the boost from the tax cuts suggest growth will remain strong. To some degree this creates a feeling of ‘too much of a good thing’: market concern about an acceleration of inflation may resurface which could lead to a more volatile environment, reminiscent of February this year. Ongoing strong growth with an unemployment rate which is already very low implies that the labour market may end up becoming a speed limit to growth. In this respect it is good to remember the historical experience that when the unemployment rate stops declining, the likelihood of a recession in the not too distant future is picking significantly.